Appraisal by Berkeley Hill: 'The CAP towards 2020'

It is hard to read the Commission’s ‘options’ for the CAP after 2013 without a feeling that there is something rigged about it. The Commission must well know that some of its proposals are non-starters. This concerns especially option 2, the moderate reform scenario. In the leaked version of the communication, the Commission has severly criticized option 3, making clear that this is just a strawman. This implies that the most likely outcome is option 1: to broadly continue the status quo but with some of the details tweaked.

The most blatant of these ‘non-options’ is contained in the proposals that relate to the ‘Option 2’ package that provides the CAP with ‘more targeted measures which could also be more understandable to the EU Citizen’. The Commission cites an example of ‘a new WTO green box compatible income stabilization tool’. Such a tool can be targeted at those farmers whose incomes are suffering unanticipated falls which might place them in poverty or make their businesses vulnerable to financial collapse. The EU Citizen could indeed understand the attractiveness of targeting support where it is most urgently needed, and would applaud the good sense of a system that did not give aid when incomes were satisfactory, thereby avoiding the deadweight that so characterises the present single payment system.

It is also true that safety net payments of this sort are sanctioned by the Uruguay Round Agreement on Agriculture, though to be WTO compatible some strict details have to be observed. Annex 2 contains two paragraphs related specifically to safety nets and disaster payments. Concerning income insurance and safety nets, para 7 states that ‘Eligibility for such payments shall be determined by an income loss, taking into account only income derived from agriculture, which exceeds 30 per cent of average gross income or the equivalent in net income terms (excluding any payments from the same or similar schemes) in the preceding three-year period or a three-year average based on the preceding five-year period, excluding the highest and the lowest entry. Any producer meeting this condition shall be eligible to receive the payments’. ‘The amount of such payments shall compensate for less than 70 per cent of the producer’s income loss in the year the producer becomes eligible to receive this assistance’. These conditions in effect set the boundary to safety net payments and determine the basis on which they can be calculated, though they seem open to interpretation concerning what constitutes income. A similar set of conditions (para 8) defines what constitutes a natural disasters (catastrophes) and sets limits to relief payments.

On two occasions (1) Commission of the European Communities (2001) Risk management tools for EU agriculture, with a special focus on insurance. Working Document, Agriculture Directorate-General. 2) Commission of the European Communities (2008). Impact Assessment [of various Regulations and a Decision]. COM(2008) 306 final.) the Commission has simulated the use of such an income safety net. Both exercises suggest that the expenditure could be highly variable from year to year, something not welcomed by the EU budget, but there is evidence that the average cost would be modest in comparison to Pillar I expenditure. Both the Commission’s analyses and experience in Canada (with the AgriStability Program) suggest that the administrative burden would be considerable. In particular, there would be a heavy requirement for income data, as the WTO rules require eligibility to be established at the level of each individual farm. In the EU this information is simply not available, in part because in many Member States not all farmers are taxed according to actual income and hence do not keep income accounts. Even where accounting is normal for taxation purposes (as in the UK) access for administrative purposes is often denied.

So, at least in the short-term, there is a technical block to the use of targeted income safety nets along the lines implied in the Commission’s communication on the future of the CAP. A good case exists that such data should be collected, not only for potential targeting but also for general CAP monitoring. One approach might be to make provision of good quality income data a condition of application for support.

As a result, the option of income support targeted at farmers suffering occasional low incomes is impractical, at least for the foreseeable future. This should come as no surprise to the Commission. To include it in proposals for the post-2013 raises questions about the Commission’s motives. A reasonable conclusion is that, rather like the suggestion of moving away from income support and most market measures (Option 3) that is clearly a political non-starter by 2014, making a further proposal for a technically imposible option focuses attention on the broad maintenance of the status quo contained in Option 1.

Berkeley Hill
Professor Emeritus of Policy Analysis
University of London (Imperial College London)